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Israel killed at least 19 Palestinians sheltering in a school in Gaza's biggest refugee camp on Wednesday, a U.N. official said, as Egyptian mediators prepared a revised proposal to try to halt more than three weeks of fighting.

Some 3,000 Palestinians, including many women and children, were taking refuge in the building in Jebalya refugee camp when it came under fire around dawn, Khalil al-Halabi, director of northern Gaza operations for the United Nations Relief and Works Agency (UNRWA) said.

"There were five shells - Israeli tank shells - which struck the people and killed many of them as they slept. Those people came to the school because it a designated U.N. shelter," he said.

An Israeli military spokeswoman said militants had fired mortar bombs from the vicinity of the school and troops fired back in response. The incident was still being reviewed.

UNRWA said on Tuesday it had found a cache of rockets concealed at another Gaza school - the third such discovery since the conflict began. It condemned unnamed groups for putting civilians at risk.

In addition to the 19 dead, some 125 people were wounded at the Jabalya school, including five in critical condition, Halabi said. An UNRWA source said the agency had recovered fragments from the shells.

Blood splattered floors and mattresses inside classrooms, and some survivors picked through shattered glass and debris for flesh and body parts to bury.

Israel has been shelling in Jebalya, where some 120,000 people live, since Tuesday, in what the chief Israeli military spokesman, Brigadier-General Motti Almoz, described as a slight broadening of its campaign against militants in the Hamas Islamist-dominated Gaza Strip.

Israeli tank fire also struck the main market in Jebalya on Wednesday, killing at least three people and wounding 40 others, the Gaza Health Ministry said. Seven members of one family died in an Israeli attack in Deir al-Balah, in the central Gaza Strip.

The ministry said 1,270 Palestinians, most of them civilians, have been killed since Israel began its offensive on July 8 with the declared aim of halting cross-border rocket fire.

In ground operations launched 10 days later, the army has said its main mission is to locate and destroy tunnels that militants have built under the frontier and have used to launch attacks inside Israel.

On the Israeli side, 53 soldiers and three civilians have been killed. Public support remains strong for continuing the operation in the hope of preventing future flareups.

Hamas defiant

Mohammed Deif, the shadowy leader of Hamas's armed wing, said in a broadcast message on Tuesday that Palestinians would continue confronting Israel until its blockade on Gaza - which is supported by neighboring Egypt - was lifted.

Five rockets were fired from Gaza at Israel on Wednesday, landing harmlessly in open areas, police said.

Israel has balked at freeing up Gaza's borders under any de-escalation deal unless Hamas's disarmament is also guaranteed.

Israeli Prime Minister Benjamin Netanyahu was due to review progress with his security cabinet later on Wednesday, and a Palestinian delegation was expected in Cairo for discussions on an elusive truce.

In previous bouts of fighting between Israel and its neighbors, the United States has often leaned on the Israelis to stop after incidents that cause high civilian casualties. Washington appears to have less sway with either side this time.

Egypt said on Tuesday it was revising an unconditional ceasefire proposal that Israel had originally accepted but Hamas rejected, and that a new offer would be presented to the Palestinian representatives.

UNRWA, the main U.N. relief agency in Gaza, said it was at "breaking point" with more than 200,000 Palestinians having taken shelter in its schools and buildings following calls by Israel for civilians to evacuate whole neighborhoods before military operations.

Both U.S. President Barack Obama and the U.N. Security Council have called for an immediate ceasefire to allow relief to reach Gaza's 1.8 million Palestinians, followed by negotiations on a more durable end to hostilities.

Efforts led by U.S. Secretary of State John Kerry last week failed to achieve a breakthrough, and the explosion of violence appeared to dash international hopes of turning a brief lull for the Muslim Eid al-Fitr festival into a longer-term ceasefire.

In a statement on Wednesday, German Foreign Minister Frank-Walter Steinmeier said he was "extremely concerned about the escalating fighting in and around Gaza" in which civilian infrastructure and U.N. facilities have come under fire.

"Everything must be done to prevent civilian victims and to uphold humanitarian law," he said. "I urge both sides to agree to an immediate ceasefire and to resume negotiations about a long-term ceasefire on the basis of the Egyptian suggestions."